UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
|X| Preliminary Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)2))
|_| Definitive Information Statement
ELECTRONIC GAME CARD, INC.
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box)
|X| No fee required
|_| Fee computed on table
below per Exchange Act
Rules 14c-5(g) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11(set forth the amount on which the filing fee is
calculated and state how it was determined)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.
(3) Filing Party:
(4) Date Filed:
COPY TO:
Michael Hirschberg, Esq.
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Telephone: (212) 940-8511 Facsimile: (212) 894-5646
Dear Fellow Stockholder:
The purpose of this Information Statement is to inform you that as of March 22,
2005, via written consent, the Board of Directors of Electronic Game Card, Inc.
(the "Company") approved an amendment to the Company's Articles of Incorporation
(the "Amendment") to create and establish a series of preferred stock of the
Company in connection with a private placement (the "Private Placement") of the
Company's convertible promissory notes (the "Notes"). The Board authorized
10,000,000 shares of Series A Convertible Preferred Stock, par value $0.001
("Series A Preferred Stock"), in accordance with the form of Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock
(the "Certificate of Designations") attached to this Information Statement as
Annex A.
The holders of 13,248,825 shares of the Company's common stock (the "Common
Stock"), or approximately 52% of the issued and outstanding shares of Common
Stock as of March 15, 2005 executed written consents approving the Amendment.
Pursuant to the provisions of the Nevada General Corporation Law and the
Company's Articles of Incorporation, the holders of at least a majority of the
outstanding voting shares are permitted to approve the Amendment by written
consent in lieu of a meeting, provided that prompt notice of such action is
given to the other stockholders of the Company. Such written consents assure
that the Amendment will occur without your vote. Pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), an
information statement must be sent to the holders of voting stock who did not
sign written consents at least twenty (20) days prior to the effective date of
the action. This notice, which is being sent to all holders of record as of
March 15, 2005, is intended to serve as such notice under Nevada law and as the
information statement required by the Exchange Act.
The date of this Information Statement is September 20, 2005. This Information
Statement will be mailed on or about September 30, 2005.
WE ARE NOT ASKING YOU FOR A PROXY, AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
Sincerely,
John Bentley
Chief Executive Officer
INTRODUCTION
As of March 22, 2005, via written consent, the Board of Directors of Electronic
Game Card, Inc. (the "Company") approved an amendment to the Company's Articles
of Incorporation (the "Amendment") to create and establish a series of preferred
stock of the Company in connection with a private placement (the "Private
Placement") of the Company's convertible promissory notes. The Board authorized
10,000,000 shares of Series A Convertible Preferred Stock, par value $0.001
("Series A Preferred Stock"), in accordance with the form of Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock
(the "Certificate of Designations") attached hereto as Annex A.
The holders of 13,248,825 shares of the Company's common stock (the "Common
Stock"), or approximately 52% of the issued and outstanding shares of Common
Stock as of March 15, 2005 executed written consents approving the Amendment. As
of the close of business on March 15, 2005, Company records indicated that
25,468,439 shares of its Common Stock were issued and outstanding.
This Information Statement is being mailed on or about September 30, 2005 to
holders of record of Common Stock at the close of business on March 15, 2005,
pursuant to Section 14(c) of the Exchange Act and Regulation 14C promulgated
thereunder. Pursuant to federal securities laws, the Amendment will not be
effective until twenty (20) days following the mailing of this Information
Statement or shortly thereafter.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
QUESTIONS AND ANSWERS ABOUT THE AMENDMENT
Q. Why did I receive this Information Statement?
A. Applicable laws require us to provide you information regarding the Amendment
even though your vote is neither required nor requested for the Amendment to
become effective.
Q. What will I receive if the Amendment is completed?
A. Nothing. The Amendment will only modify the Company's Articles of
Incorporation.
Q. When do you expect the Amendment to become effective?
A. The Amendment will become effective upon the filing of the Certificate of
Designations and the Amendment with the Nevada Secretary of State. A copy of the
form of Amendment is attached to this Information Statement as Annex B. We
expect to file the Certificate of Designations and the Amendment with the Nevada
Secretary of State twenty (20) days after this Information Statement has been
sent to you or shortly thereafter.
Q. Why am I not being asked to vote?
A. The holders of a majority of the issued and outstanding shares of Common
Stock have already approved the Amendment pursuant to a written consent in lieu
of a meeting. Such approval, together with the approval of the Company's Board
of Directors, is sufficient under Nevada law, and no further approval by our
stockholders is required.
Q. What do I need to do now?
A. Nothing. This Information Statement is purely for your information and does
not require or request you to do anything.
Q. Whom can I call with questions?
A. If you have any questions about the Amendment, please contact John Bentley at
646-723-8936.
AMENDMENT TO THE ARTICLES OF INCORPORATION
As of March 22, 2005, by written consent, our Board of Directors, believing it
to be in the best interest of the Company and its stockholders, approved the
Amendment. A copy of the form of Amendment is attached hereto as Annex B and
incorporated herein by reference. The authorization of 10,000,000 shares of
Series A Convertible Preferred Stock ("Series A Preferred Stock") will allow the
Company to fulfill the terms of a private placement of securities (the "Private
Placement") to accredited investors as disclosed in the Current Reports on Form
8-K filed on March 31, 2005 and April 11, 2005. The Company sold a total of
$8,666,000 of Convertible Promissory Notes (the "Notes") in the Private
Placement. Under the terms of the Private Placement, each $48,000 principal
amount of a Note purchased automatically converts initially into 32,000 shares
of Series A Preferred Stock or, if the investor chooses, directly into 32,000
shares of the Company's Common Stock. This equates to an initial conversion
price of $1.50 per share of Common Stock. Investors were also issued warrants
(the "Investor Warrants") to purchase one share of Series A Preferred Stock, or
Common Stock if they choose, for every two shares of Series A Preferred Stock
issuable upon conversion of the Notes.
Ultimately, the Company could issue a maximum of approximately 9,143,732 shares
of Common Stock in connection with the Private Placement. This amount represents
the number of shares of Common Stock issuable upon conversion of all of the
Notes either into Series A Preferred Stock or Common Stock and the conversion of
all shares of Series A Preferred Stock into Common Stock, the number of shares
of Common Stock issuable upon the exercise of the Investor Warrants and the
number of shares of Common Stock issuable upon the exercise by the placement
agents of warrants granted to them in the Private Placement.
Both the Series A Preferred Stock and the Investor Warrants contain
anti-dilution provisions which could affect the actual number of shares issuable
upon conversion of the Series A Preferred Stock and exercise of the Investor
Warrants. In the event of any (a) subdivision of the outstanding shares of
Common Stock into a larger number of shares, (b) combination of the outstanding
shares of Common Stock into a smaller number of shares, (c) issuance of
additional shares of Common Stock as a dividend or distribution, (d) capital
reorganization or reclassification of the capital stock of the Company, (e)
exchange or con version of the Common Stock for or into securities of another
entity, (f) consolidation or merger of the Company with or into any other entity
or (g) sale, lease or conveyance of all or substantially all of the assets of
the Company, then in each such instance the conversion price of the Series A
Preferred Stock and the exercise price of the Investor Warrants shall be
adjusted as if the Series A Preferred Stock had been converted and the Investor
Warrants exercised immediately prior to the occurrence of any of such events.
For example, if the Company declared a two for one stock split, then the
conversion price of the Series A Preferred Stock and the exercise price of the
Investor Warrants would be divided by two and the number of shares issuable upon
such conversion or exercise would be multiplied by two, so that both the
economic effect to the Company and the holders of the Series A Preferred Stock
and the Investor Warrants, as well as the dilutive effect to the existing
stockholders of the Company, would be the same after giving effect to the stock
split. The Series A Preferred Stock and the Investor Warrants also contain
anti-dilution provisions in the event of the issuance of additional shares of
Common Stock for no consideration or for a consideration per share less than the
conversion price of the Series A Preferred Stock and the exercise price of the
Investor Warrants. In such event, the conversion price and the exercise price
would be reduced to a price equal to the quotient obtained by dividing (a) an
amount equal to (i) the total number of shares outstanding multiplied by the
conversion price plus (ii) the consideration received from the new issuance by
(b) the total number of shares outstanding immediately after such new issuance.
For example, if the Company issued 10,000,000 shares of Common Stock at a price
of $1.00 per share at a time when the conversion price of the Series A Preferred
Stock was $1.50 per share and there were 20,000,000 shares of Common Stock
outstanding, the conversion price would be the adjusted downward to $1.33 per
share (20,000,000 x $1.50 plus $10,000,000 divided by 30,000,000), thus
resulting in a larger number of shares of Common Stock issuable upon conversion
of the Series A Preferred Stock into Common Stock.
Authorize 10,000,000 Shares of Series A Convertible Preferred Stock of the
Company. The Company's Articles of Incorporation currently authorize the Company
to issue 100,000,000 shares of Common Stock but does not authorize the Company
to issue any preferred stock. Upon the effectiveness of the Amendment, the Board
of Directors of the Company will be entitled to issue up to 10,000,000 shares of
Series A Preferred Stock with such rights, preferences, limitations and
restrictions as described in the Certificate of Designations, with no further
authorization by stockholders required for the creation and issuance thereof. In
accordance with the provisions of the Nevada General Corporation Law, the Board
of Directors of the Company has the express authority to execute, acknowledge
and file a certificate of designations setting forth any and all powers,
designations, preferences, rights, qualifications, limitations or restrictions
on the Preferred Stock. The Board of Directors believes it to be in the best
interest of the Company to amend its Articles of Incorporation.
Upon the issuance of the shares of Series A Preferred Stock in accordance with
the terms of the Private Placement, there will then be a class of securities
outstanding with rights and preferences, including dividends and liquidation,
ranking senior and prior to the existing holders of the Company's Common Stock.
In the event of a liquidation, bankruptcy or dissolution of the Company, the
holders of the Series A Preferred Stock would be entitled to receive the
original issue price of their shares before any distribution of assets is made
to the existing Common Stock holders. The holders of the Series A Preferred
Stock also have certain protective provisions which require the Company to
obtain their consent before purchasing, repurchasing or redeeming any of the
shares of the existing Common Stock holders. Finally, the holders of the Series
A Preferred Stock have voting rights together with the existing Common Stock
holders, which has the effect of diluting the voting power of such existing
Common Stock holders.
Approval by Stockholders. As of March 15, 2005, the Company had 25,468,439
shares of its Common Stock issued and outstanding. As of such date, the holders
of 13,248,825 shares of Common Stock, or approximately 52% of the issued and
outstanding shares of Common Stock, approved the Amendment and the creation of
10,000,000 shares of Series A Preferred Stock to be issued in connection with
the Private Placement. The Series A Preferred Stock has the powers,
designations, preferences, rights, qualifications, limitations and restrictions
as specified in the Certificate of Designations attached hereto as Annex A. The
full text of the Amendment is attached hereto as Annex B. Pursuant to the
provisions of Nevada law and the Company's Articles of Incorporation, the
holders of at least a majority of the outstanding voting shares are permitted to
approve the Amendment by written consent in lieu of a meeting, provided that
prompt notice of such action is given to the other stockholders. Pursuant to the
rules and regulations promulgated by the SEC under the Exchange Act, an
information statement must be sent at least twenty (20) days prior to the
effective date of the action to the holders of voting stock who did not sign
written consents. This Information Statement, which is being sent to all holders
of record as of March 15, 2005, is intended to serve as such notice under Nevada
law and as the information statement required by the Exchange Act.
The Company anticipates that the Amendment will be effective twenty (20) days
after the mailing of this Information Statement; that is, it will be effective
on approximately October 20, 2005 or shortly thereafter.
THE AMENDMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THE AMENDMENT OR THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
PLEASE NOTE THAT THIS IS NEITHER A REQUEST FOR YOUR VOTE NOR A PROXY STATEMENT
BUT RATHER AN INFORMATION STATEMENT DESIGNED TO PROVIDE YOU WITH INFORMATION
ABOUT THE AMENDMENT AND TO INFORM YOU THAT THE AMENDMENT WILL OCCUR.
DESCRIPTION OF SECURITIES
COMMON STOCK
Number of Authorized and Outstanding Shares. The Company's Articles of
Incorporation authorize the issuance of 100,000,000 shares of Common Stock, par
value $0.001 per share, of which 25,468,439 shares were outstanding on March 15,
2005. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
Voting Rights. Holders of shares of Common Stock are entitled to one vote for
each share on all matters to be voted on by the stockholders. Holders of Common
Stock have no cumulative voting rights. Accordingly, the holders of in excess of
50% of the aggregate number of shares of Common Stock outstanding will be able
to elect all of the directors of the Company and to approve or disapprove any
other matter submitted to a vote of all stockholders.
Other. Holders of Common Stock have no preemptive rights to purchase the
Company's Common Stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the Common Stock.
Transfer Agent. Shares of Common Stock are registered at the transfer agent and
are transferable at such office by the registered holder (or duly authorized
attorney) upon surrender of the Common Stock certificate, properly endorsed. No
transfer shall be registered unless the Company is satisfied that such transfer
will not result in a violation of any applicable federal or state securities
laws. The Company's transfer agent for its Common Stock is Liberty Transfer Co.,
274B New York Avenue, Huntington, New York 11743 Attn: Lisa Conger.
PREFERRED STOCK
Number of Authorized Shares. After adoption of the Amendment, the Company's
Articles of Incorporation will authorize the issuance of 10,000,000 shares of
Series A Convertible Preferred Stock, par value $0.00l per share, with such
rights, preferences, limitations and restrictions as described in the
Certificate of Designations, with no further authorization by stockholders
required for the creation and issuance thereof. Shares of Series A Preferred
Stock will be registered on the books of the Company. The Company currently
anticipates that the Series A Preferred Stock will not be registered with the
SEC. No transfer shall be registered unless the Company is satisfied that such
transfer will not result in a violation of any applicable federal or state
securities laws.
Voting Rights. Holders of shares of Series A Preferred Stock are entitled to the
number of votes equal to the number of whole shares of Common Stock into which
the shares of Series A Preferred Stock are convertible on all matters to be
voted on by the stockholders. Holders of Series A Preferred Stock shall vote
together with the holders of Common Stock as a single class. Holders of Series A
Preferred Stock also have the right to vote as a separate class on certain
extraordinary corporate actions specified in the Certificate of Designations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 15, 2005 by (i) each person who is known
by the Company to beneficially own 5% or more of the Common Stock, (ii) each
director or executive officer of the Company, and (iii) all directors and
executive officers of the Company as a group.
- ------------------------------------------- --------------------- --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL CURRENT PERCENTAGE OF
OWNERSHIP OF STOCK OWNERSHIP (1)
- ------------------------------------------- --------------------- --------------------------
Scientific Games International, Inc. 2,171,594 8.53%
1500 Bluegrass Lakes Parkway
Alpharetta, GA 30004
- ------------------------------------------- --------------------- --------------------------
John Bentley (2)
Savannah House, 11-12 Charles II Street
London, SW1Y 4QU 2,050,001 8.05%
UK
- ------------------------------------------- --------------------- --------------------------
Henrietta McNally
Fountain House, Park Street
Mayfair W1K 7HG London 1,937,791 7.60%
UK
- ------------------------------------------- --------------------- --------------------------
Yana Consultants Ltd
P.O. Box 3175 Road Town 1,537,500 5.73%
Tortola, BVI
- ------------------------------------------- --------------------- --------------------------
Linden Boyne (3)
Savannah House, 11-12 Charles II Street
London, SW1Y 4QU 300,000* .01%
UK
- ------------------------------------------- --------------------- --------------------------
Lee Cole (4)
712 Fifth Avenue, 19th Floor 0 0
New York, NY 10019
- ------------------------------------------- --------------------- --------------------------
All Officers and Directors as a group 2,350,001 9.23%
- ------------------------------------------- --------------------- --------------------------
* Consists of options to purchase 300,000 shares of Common Stock that are
exercisable within 60 days of March 15, 2005.
(1) Based on a total of 25,468,439 shares of Common Stock issued and outstanding
as of March 15, 2005. In accordance with SEC rules, each person's percentage
interest is calculated by dividing the number of shares that person beneficially
owns by the sum of (a) the total number of shares outstanding on March 15, 2005
plus (b) the number of shares such person has the right to acquire within sixty
(60) days of March 15, 2005.
(2) John Bentley is Chief Executive Officer, President and a Director of the
Company.
(3) Linden Boyne is Chief Financial Officer, Secretary, Treasurer and a Director
of the Company.
(4) Lee Cole is a Director of the Company.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director, executive officer, associate of any director or executive officer
or any other person has any substantial interest, direct or indirect, by
security holdings or otherwise, in the matters to be acted upon herein. All
directors of the Company approved the Amendment by unanimous written consent as
of March 22, 2005, and no director has informed the Company in writing that he
intends to oppose any action to be taken by the Company in connection with the
Amendment.
MATERIAL INCORPORATED BY REFERENCE
For more detailed information about the Company, including financial statements,
and the Private Placement, you may refer respectively to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2004 and the
Company's Current Reports on Form 8-K filed with the SEC on March 31, 2005 and
April 11, 2005, which documents are incorporated herein by reference. This
Information Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents (other than certain
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available without charge, to any person to whom a copy of this
Information Statement has been delivered upon written or oral request to John
Bentley, Chief Executive Officer, 712 Fifth Avenue, 19th floor, New York, New
York 10019-4108, Telephone: 646-723-8936. These documents will be sent by first
class mail or other equally prompt means within one business day of receipt of
such request. These documents are also available on the SEC's EDGAR database at
www.sec.gov.
ANNEX A
FORM OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ELECTRONIC GAME CARD, INC.
(Pursuant to Nevada Revised Statutes)
Electronic Game Card, Inc., a corporation organized and existing under the laws
of the State of Nevada (the "Company"), hereby certifies that, pursuant to the
authority vested in the Board of Directors of the Company (the "Board") by the
Articles of Incorporation of the Company (the "Articles of Incorporation"), as
amended, the following resolution was adopted as of March 22, 2005 by the Board
pursuant to the applicable Nevada Revised Statutes:
RESOLVED, that pursuant to the authority granted to and vested in the Board in
accordance with the provisions of the Articles of Incorporation, as amended,
there shall be created a series of Preferred Stock, $0.001 par value, which
series shall have the following designations and number thereof, powers,
preferences, rights, qualifications, limitations and restrictions:
1. Designation and Number of Shares. There shall hereby be created and
established a series of Preferred Stock designated as "Series A Convertible
Preferred Stock" (the "Series A Preferred Stock"). The authorized number of
shares of Series A Preferred Stock shall be 10,000,000 shares; provided, that
whatever number of shares of Series A Preferred Stock is not issued and sold in
the offering of Series A Preferred Stock being undertaken contemporaneously with
the creation of the Series A Preferred Stock shall be cancelled, retired and
eliminated by the Company from the shares of Series A Preferred Stock which the
Company shall be authorized to issue other than for any shares of Series A
Preferred Stock which the Company may choose to retain as authorized shares for
purposes of payment of interest on the Company's convertible promissory notes
outstanding as of the date hereof which were convertible into the Series A
Preferred Stock, and dividends due and payable from time to time on the
outstanding shares of Series A Preferred Stock, if any. Any such shares of
Series A Preferred Stock so cancelled, retired and eliminated shall have the
status of authorized and unissued shares of Preferred Stock issuable in
undesignated Series and may be redesignated and reissued in any series other
than as Series A Preferred Stock provided that no such redesignated or reissued
shares can be Senior Preferred unless authorized pursuant to Section 9 hereof.
2. Conversion.
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible into a number of shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") equal to the applicable Liquidation Amount
(as defined in Section 5 hereof) divided by the then applicable Conversion Price
(as defined herein) upon the earlier to occur of (i) the election of the holder
to convert (an "Optional Conversion"), in whole or in part, at any time, or from
time to time, commencing with date of the issuance of such share of Series A
Preferred Stock (the "Issuance Date") or (ii) the earliest to occur of the
following dates (an "Automatic Conversion"): (A) the date upon which both (x)
the average of the Market Price (as defined herein) for a share of Common Stock
for a period of at least thirty consecutive Trading Days (as defined herein)
exceeds Three Hundred Per Cent (300%) of the then-applicable Conversion Price
and (y) the average of the trading volume for the Common Stock during such
period exceeds One Hundred Thousand (100,000) shares per day (subject to
adjustment of such trading volume threshold in the event of stock splits,
reverse stock splits, stock dividends, recapitalizations or similar events)
shares per Trading Day; (B) upon the affirmative vote of the holders of a
majority of the then outstanding shares of Series A Preferred Stock; or (C)
immediately prior to the closing of an underwritten public offering of shares of
Common Stock of the Company with an aggregate value of not less than $15 million
for a price per share of not less than three (3) times the then-applicable
Conversion Price of the Series A Preferred Stock (in each case before deduction
of underwriters commissions and expenses) (a "Qualified IPO"). The Company will
furnish written notice to holders as promptly as practicable following any
Automatic Conversion and, in any event, within ten (10) business days
thereafter.
(b) As used herein, "Market Price" means, with respect to any applicable
security as of any applicable date, (i) the last closing trade price of such
security on whichever national securities exchange or trading market (including,
without limitation, the Nasdaq and the OTC Bulletin Board) is the principal
trading market where such security is listed by the Company for trading (the
"Principal Market"), as reported by Bloomberg, or (ii) if the Principal Market
should operate on an extended hours basis and does not designate the closing
trade price, then the last trade price of such security prior to the
commencement of extended trading hours on the applicable date, but in no event
later than 4:30:00 p.m., New York local time, as reported by Bloomberg, or (iii)
if no last trade price is reported for such security by Bloomberg, the average
of the bid prices, on the one hand, and the ask prices, on the other hand, of
all market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). The applicable
trading market for such calculation, whether it is the Principal Market or the
"pink sheets", is hereafter referred to as the "Trading Market". The Company
shall make all determinations pursuant to this paragraph in good faith. In the
absence of any available public quotations for the Common Stock, the Board shall
determine in good faith the fair value of the Common Stock, which determination
shall be set forth in a certificate by the Secretary of the Company.
As used herein, "Trading Day" means a day on which the principal Trading Market
with respect to the Common Stock is open for the transaction of business.
(c) Effecting a Conversion. Immediately upon the occurrence of an Automatic
Conversion, each holder's shares of Series A Preferred Stock, shall be deemed to
have been converted into the applicable number of shares of the Company's Common
Stock in accordance with the then applicable Conversion Price, and certificates
evidencing such shares of Common Stock shall be issued to such holder within
five business days after receipt of the applicable certificates evidencing such
holder's shares of Series A Preferred Stock, together with other customary
documentation (including delivery instructions). The holder shall effect any
Optional Conversion by surrendering the certificate or certificates representing
the shares of Series A Preferred Stock to be converted to the Company, together
with written notice of its election to convert and specifying the name or names
(with address) in which a certificate or certificates for shares of Common Stock
are to be issued (a "Stockholder Conversion Notice"). Each Stockholder
Conversion Notice shall specify the number of shares of Series A Preferred Stock
to be converted and the date on which such conversion is to be effected, which
date may be neither prior to, nor more than 10 days after, the date the holder
delivers such Stockholder Conversion Notice. If no conversion date is specified
in a Stockholder Conversion Notice, the conversion date shall be the date that
the Stockholder Conversion Notice is delivered. Each Stockholder Conversion
Notice, once given, shall be irrevocable. A holder of Series A Preferred Stock
may only convert shares of Series A Preferred Stock in blocks equal to not less
than the lesser of (i) the number of shares of Series A Preferred Stock,
convertible into 15,000 shares of Common Stock and (ii) all shares of Series A
Preferred Stock then held by the stockholder. If the holder is converting less
than all shares of Series A Preferred Stock represented by the certificate or
certificates tendered by the holder with the Stockholder Conversion Notice, the
Company shall convert the number of shares of Series A Preferred Stock so
specified and shall promptly deliver (but not more than fifteen business days
later) to such holder a certificate for such number of shares as have not been
converted. Upon an Automatic Conversion, the Company shall notify each holder
thereof and each holder shall surrender the certificate or certificates
representing all of the shares of Series A Preferred Stock owned by such holder
and each holder of shares of Series A Preferred Stock shall be deemed to be the
holder of record of the Common Stock issued upon such Automatic Conversion. All
fractional shares resulting from the conversion of the Series A Preferred Stock
shall be rounded up to the next highest whole share. All certificates
representing shares of Series A Preferred Stock surrendered for conversion shall
be delivered to the Company for cancellation and canceled by it. As promptly as
practicable (but no more than ten business days) after the surrender of any
shares of Series A Preferred Stock, the Company shall (subject to compliance
with the applicable provisions of federal and state securities laws) deliver to
the holder of such shares so surrendered certificate(s) representing the number
of fully paid and nonassessable shares of Common Stock into which such shares
are entitled to be converted. Upon a conversion, any accrued and unpaid
dividends shall be paid either in cash, to the extent funds are legally
available therefor, or shares of Common Stock valued at the Market Price, in the
sole discretion of the Company.
(d) Conversion Price. The initial conversion price per share of the Series A
Preferred Stock (the "Conversion Price"), shall be equal to One Dollar and Fifty
Cents ($1.50) per share of Common Stock into which such number of share of
Series A Preferred Stock is convertible, subject to adjustment as provided in
Section 3.
(e) Reservation of Shares. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Series A Preferred Stock,
as herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the holders of Series A Preferred Stock
pursuant to this clause, not less than such number of shares of Common Stock as
shall be issuable upon the conversion of all outstanding shares of Series A
Preferred Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and freely tradeable.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of Series A Preferred Stock, in addition to such other remedies as shall be
available to the holders of such Series A Preferred Stock, the Company will take
such corporate action necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purposes.
(f) Issue Taxes. The Company shall pay all issue taxes, if any, incurred in
respect of the issue of shares of Common Stock on conversion. If a holder of
shares of Series A Preferred Stock specifies that the shares of Common Stock to
be issued on Automatic Conversion are to be issued in a name or names other than
the name or names in which such Series A Preferred Stock stand or the names of
affiliates of the initial holder of such shares, then the Company shall not be
required to pay any additional transfer or other taxes incurred by reason of the
issuance of such shares of Common Stock to the name of another, and if the
appropriate transfer taxes shall not have been paid to the Company or the
transfer agent for the Series A Preferred Stock, as applicable, at the time of
Automatic Conversion of the Series A Preferred Stock, as applicable, the shares
of Common Stock issued upon conversion thereof may be registered in the name or
names in which the Series A Preferred Stock, as applicable, were registered,
despite the instructions to the contrary.
3. Adjustment of Conversion Price.
(a) Definition of Additional Stock. For purposes of this Section 3, "Additional
Shares of Common Stock" includes all shares of Common Stock issued by the
Company after the Issuance Date, other than the following securities, and the
securities which may be converted or exercised, directly or indirectly, into the
following securities:
(i) The Shares of Series A Preferred Stock, or the Shares of Common Stock issued
upon conversion of shares of Series A Preferred Stock;
(ii) (a) Shares of Common Stock issuable or issued to the Company's employees,
officers, directors or consultants pursuant to a stock option plan or restricted
stock plan approved by the Board or (b) securities and options, warrants and
other rights to purchase securities issued to financial institutions or lessors
in connections with commercial credit agreements, equipment financings or
similar transactions; provided, that the aggregate of shares of Common Stock
issued pursuant to clauses (a) and (b), calculated on a fully-diluted basis as
converted or exercised into Common Stock, in excess of 20% of the Company's
shares of Common Stock outstanding at any time shall be deemed to be Additional
Shares of Common Stock;
(iii) Shares of Common Stock issued or issuable pursuant to subsection 3(d)
below;
(iv) Shares of Common Stock or Preferred Stock issuable upon exercise of
options, warrants or upon conversion of convertible securities or other rights
outstanding as of the Issuance Date; and options, warrants, and other
convertible securities or rights issued in connection with the sale by the
Company of the Series A Preferred Stock or the Permitted Preferred Stock, if
any; and
(v) Securities and options, warrants and other rights to purchase securities
issued to other corporations, persons or entities in connection with
acquisitions, mergers or similar business combinations, partnership
arrangements, strategic alliances, licensing arrangements or similar non-capital
raising transactions approved by the Board, including within this exception
securities and options, warrants and rights to purchase securities issued to
raise capital provided that the use of proceeds is to consummate such
non-capital raising transactions.
The number and kind of securities issuable upon the conversion of the Series A
Preferred Stock and the Conversion Price shall be subject to adjustment from
time to time in accordance with the following provisions:
(b) Subdivision or Combination of Shares. In the event that the Company shall at
any time or from time to time, prior to conversion of shares of Series A
Preferred Stock (x) subdivide the outstanding shares of Common Stock into a
larger number of shares or (y) combine the outstanding shares of Common Stock
into a smaller number of shares, then, and in each such case, the Conversion
Price in effect immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Company) so that the holder of any
share of Series A Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series A Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this Section 3(b) shall become
effective retroactively in the case of any such subdivision or combination, to
the close of business on the day upon which such corporate action becomes
effective.
(c) Stock Dividends. In case Additional Shares of Common Stock are issued as a
dividend or other distribution on the Common Stock (or such dividend is
declared), the Conversion Price shall be reduced, as of the date a record is
taken of the holders of Common Stock for the purpose of receiving such dividend
or other distribution (or if no such record is taken, as at the earliest of the
date of such declaration, payment or other distribution), to the Conversion
Price determined by multiplying the Conversion Price in effect immediately prior
to such declaration, payment or other distribution by a fraction (i) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the declaration or payment of such dividend or other
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after the declaration or payment
of such dividend or other distribution. In the event that the Company shall
declare or pay any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire Common Stock.
(d) Recapitalization or Reclassification of Common Stock. In case of any (i)
capital reorganization or any reclassification (other than a change in par
value) of the capital stock of the Company, or (ii) exchange or conversion of
the Common Stock for or into securities of another corporation or other entity,
or (iii) consolidation or merger of the Company with or into any other person
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock or any issuance
of Additional Shares of Common Stock) or (iv) sale, lease or other conveyance of
all or substantially all of the assets of the Company, then in each instance
referred to in the preceding clauses (i) through (iv), the Board and the person
formed by such consolidation or resulting from such capital reorganization,
reclassification or merger or which acquires (by sale, lease or other
conveyance) such assets, as the case may be, shall make provision such that the
Series A Preferred Stock shall thereafter be convertible for the kind and amount
of shares of stock, other securities, cash and other property receivable upon
such capital reorganization, reclassification, consolidation, merger, sale,
lease or other conveyance, as the case may be, by a holder of shares of Common
Stock equal to the number of shares of Common Stock underlying the Series A
Preferred Stock, as applicable, issuable upon the conversion of the Series A
Preferred Stock immediately prior to the effective date of such capital
reorganization, reclassification, merger, consolidation, sale, lease or other
conveyance and, in each instance referred to in the preceding clauses (i)
through (iv) (each, a "Transaction"), appropriate adjustment (as reasonably
determined in good faith by the Board) shall be made in the application of the
provisions herein set forth with respect to rights and interests thereafter of
the holders of the Series A Preferred Stock, to the end that the provisions set
forth herein (including the specified changes in and other adjustments of the
number of shares underlying the Series A Preferred Stock) shall thereafter be
applicable, as near as reasonably may be, in relation to any such shares of
stock or other securities or other property thereafter deliverable upon
conversion of the Series A Preferred Stock. The Company shall not enter into any
Transaction unless effective provision shall be made so as to give effect to the
provisions set forth in this subsection (d).
The Company shall not effect any transaction described in this subsection 3(d)
unless (i) it first gives twenty (20) days' prior written notice of such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the holders of Series A
Preferred Stock shall be entitled to convert the Series A Preferred Stock) and
(ii) the resulting successor or acquiring entity (if not the Company) assumes by
written instrument the obligations of this subsection 3(d). The provisions of
this subsection 3(d) shall similarly apply to successive consolidations,
reorganizations, reclassifications, exchanges, conversions, mergers, sales,
leases and other conveyances.
(e) Issuance of Stock at Less than Conversion Price. If the Company shall issue
any Additional Shares of Common Stock after the Issuance Date (other than as
provided in the foregoing subsections 3(b) through 3(d)), for no consideration
or for a consideration per share less than the Conversion Price in effect on the
date of and immediately prior to such issue, then in such event, the Conversion
Price shall be reduced, concurrently with such issue, to a price equal to the
quotient obtained by dividing:
(i) an amount equal to (x) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the
Conversion Price in effect immediately prior to such issuance or sale, plus (y)
the Aggregate Consideration Received (as such term is defined in subsection
3(g)(v)) or deemed to be received by the Company upon such issuance or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issuance or sale.
(f) Issuance of Options and Convertible Securities Deemed Issuance of Additional
Shares of Common Stock. If the Company, at any time or from time to time after
the Issuance Date, shall issue any options, warrants or rights to purchase
Common Stock (collectively, "Options") or securities that, by their terms,
directly or indirectly, are convertible into or exchangeable for shares of
Common Stock ("Convertible Securities") (in each case other than those
securities excluded, pursuant to Section 3, from the definition of "Additional
Shares of Common Stock") or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, in each case other than those securities excluded,
pursuant to Section 3, from the definition of "Additional Shares of Common
Stock", then the maximum number of shares of Common Stock (as set forth in the
instrument relating thereto without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued under this Certificate as of the time
of such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment in the Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities and, upon the expiration of any such Option or the termination of any
such right to convert or exchange such Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the Conversion
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
Common Stock issuable thereunder shall no longer be deemed to be outstanding;
(ii) if such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any increase in the consideration payable to
the Company, or decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided that no readjustment
pursuant to this clause (B) shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date; and
(iii) if such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any decrease in the consideration payable to
the Company, or increase in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
decrease or increase becoming effective, be recomputed to reflect such decrease
or increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided that no readjustment
pursuant to this clause (C) shall have the effect of decreasing the Conversion
Price to an amount which exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(g) Other Provisions Applicable to Adjustment Under this Section 3. The
following provisions shall be applicable to the adjustments in the Conversion
Price as provided in this Section 3.
(i) Treasury Shares. The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or indirectly
owned or held by or for the account of the Company.
(ii) Other Action Affecting Common Stock. If the Company shall take any action
affecting the outstanding number of shares of Common Stock other than an action
described in any of the foregoing subsections 3(b) through 3(f) hereof,
inclusive, which would have an inequitable effect on the holders of the Series A
Preferred Stock, then the Conversion Price shall be adjusted in such manner and
at such times as the Board on the advice of the Company's independent public
accountants may in good faith determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the Conversion Price shall be made if
the amount of any such adjustment would be an amount less than one percent (1%)
of the Conversion Price then in effect, but any such amount shall be carried
forward and an adjustment in respect thereof shall be made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate an increase or
decrease of one percent (1%) or more.
(iv) Certain Adjustments. The Conversion Price shall not be adjusted upward
except in the event of a combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock.
(v) Determination of Consideration.
(A) For purposes of subsection 3(e), the "Effective Price" of Additional Shares
of Common Stock shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to have been
issued or sold, by the Corporation under subsection 3(e), into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 3(e), for the issue of such Additional Shares of Common Stock
(B) For purposes of this Subsection 3(f), the Aggregate Consideration Received
by the Company for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate gross amount of
cash received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company and excluding amounts paid or payable for accrued interest or
accrued dividends;
(2) insofar as it consists of property other than cash, be computed at the fair
market value thereof at the time of such issue, as determined in good faith by
the Board; and
in the event Additional Shares of Common Stock are issued together with other
shares or securities or other assets of the Company for consideration which
covers both, be the proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, as determined in good faith by the Board.
(B) Options and Convertible Securities. The consideration per share received by
the Company for Additional Shares of Common Stock deemed to have been issued
pursuant to subsection 3(f)(ii), relating to Options and Convertible Securities,
shall be determined by dividing
(1) the total amount, if any, received or receivable by the Company as
consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Company upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, by
(2) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(i) No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of Section 3 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A Preferred Stock against
impairment.
(j) Notices of Adjustments. Whenever the Conversion Price is adjusted as herein
provided, the Chief Financial Officer (or other senior executive officer in the
absence of such person) of the Company shall, in good faith, compute the
adjusted Conversion Price in accordance with the foregoing provisions and shall
prepare a written certificate setting forth such adjusted Conversion Price and
showing in detail the facts upon which such adjustment is based, and such
written instrument shall promptly be delivered to each record holder of the
Series A Preferred Stock.
4. Ranking.
The Series A Preferred Stock shall rank, as to dividends, rights upon
liquidation, dissolution or winding up, senior and prior to (i) the Common Stock
and (ii) each other class or series of capital stock of the Company hereafter
created which does not expressly rank pari passu with or senior to the Series A
Preferred Stock, as applicable, except as otherwise approved by the affirmative
vote or consent of the holders of a majority of the outstanding shares of Series
A Preferred Stock pursuant to Section 9 hereof. (All equity securities of the
Company to which the Series A Preferred Stock ranks senior to, whether with
respect to dividends, rights upon liquidation, dissolution, winding up or
otherwise, including the Common Stock, are collectively referred to herein as
"Junior Securities," all equity securities of the Company to which the Series A
Preferred Stock ranks on a parity with, whether with respect to dividends or
upon liquidation, dissolution, winding up or otherwise, are collectively
referred to herein as "Parity Securities" and all equity securities of the
Company to which the Series A Preferred Stock ranks junior, whether with respect
to dividends or upon liquidation, dissolution, winding up or otherwise are
collectively referred to herein as "Senior Securities").
5. Liquidation Rights.
(a) Liquidation Preference. Upon a voluntary or involuntary liquidation, under
applicable bankruptcy or reorganization legislation, or dissolution or winding
up of the Company (each a "Liquidation"), before any distribution of assets
shall be made to the holders of Junior Securities, the holder of each share of
Series A Preferred Stock then outstanding shall be paid out of the assets of the
Company legally available for distribution to its stockholders (the "Available
Assets") an amount per share equal to the "Liquidation Amount." For purposes of
a Liquidation, the "Liquidation Amount" shall mean the original issue price per
share of the Series A Preferred Stock ($1.50 per share, as adjusted for stock
splits, dividends, combinations or other recapitalization of the Series A
Preferred Stock) plus any declared but unpaid dividends (the "Liquidation
Preference"). Notwithstanding the foregoing, if the holders of Series A
Preferred would be entitled to receive on an as-converted-into-Common-Stock
basis an amount greater than the Liquidation Preference as defined above, such
amount, calculated on such as-converted basis, shall instead be the Liquidation
Preference per share. Upon the completion of the distribution required by this
subsection 5(a), and any other distribution to any other class or series of
Senior Securities, if assets remain in the Company, the remaining assets of the
Company available for distribution to stockholders shall be distributed among
the holders of shares of any other series of preferred stock in accordance with
their respective terms, then to the holders of Common Stock pro rata based on
the number of shares of the Common Stock actually outstanding and held by
holders of shares of Common Stock.
(b) Priority. If the Available Assets are insufficient to pay the holders of
Series A Preferred Stock the full amount of the Liquidation Amount, the holders
of Series A Preferred Stock, in the aggregate, will share ratably in the
distribution of the Available Assets in proportion to the respective amounts
that would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(c) Notice. The Company will send a written notice of a Liquidation to the
holders of record of the Series A Preferred Stock, stating a payment date, the
Liquidation Amount and the place where the Liquidation Amount will be paid,
using any of the following delivery methods: (i) in person; (ii) mailed by
certified or registered mail, return receipt requested; or (iii) sent by
national courier, not less than 25 days prior to the payment date stated
therein. The notice will be addressed to each holder at its address as shown by
the records of the Company.
6. Appraisal. If a majority in interest of the holders of the Series A Preferred
Stock reasonably disagrees with any of the Board's determinations referred to in
Section 2, Section 3 or Section 5 above (each, a "Determination"), then the
Company and a majority in interest of such holders (the "Series A
Representative") shall use good faith efforts to mutually agree upon the
designation of a single Qualified Appraiser (as defined below) within seven (7)
business days of such event requiring a Determination. The date of such event
requiring a Determination shall be referred to as the "Determination Date." If
such a single Qualified Appraiser is designated, that person shall make a
Determination. If the Company and the Series A Representative do not so agree
upon the designation of a single Qualified Appraiser within such period, then
within five (5) business days following the end of such period, each of the
Company and the Series A Representative by written notice to the other shall
designate a Qualified Appraiser (or if any party fails to select a Qualified
Appraiser within the time period specified, the person selected by the other
party shall be the Qualified Appraiser) and the two Qualified Appraisers so
designated shall within ten (10) business days of their designation jointly
designate a third Qualified Appraiser and solely such third Qualified Appraiser
so designated shall independently make a Determination. If there is only a
single Qualified Appraiser, the fees and expenses of the Qualified Appraiser
shall be paid equally by the Company and the Series A Representative. If three
Qualified Appraisers are appointed, the Company shall pay the fees and expenses
of the Qualified Appraiser which it appoints, the Series A Representative shall
pay the fees and expenses of the Qualified Appraiser which it appoints, and the
fees and expenses of the third Qualified Appraiser shall be shared equally by
the Company and the Series A Representative. The designated Qualified Appraiser
shall make the Determination not later than ten (10) business days following the
Determination Date. The Determination made by the Qualified Appraiser shall be
final, conclusive and binding on the parties hereto. None of the Qualified
Appraisers shall be affiliated with any of the Company, the Series A
Representative or another Qualified Appraiser. For the purposes of this
Agreement, "Qualified Appraiser" shall mean an individual who is engaged on a
regular basis (although not necessarily full time) in valuing securities or
arrangements similar to this Agreement, as the case may be, and may include (but
shall not be limited to) professional business appraisers, investment bankers or
accountants.
7. Dividends.
Holders of the Series A Preferred shall be entitled to receive cumulative
dividends when and as the same are declared and legally paid by the Company out
of funds legally available therefore in preference to any dividend on the Common
Stock. The aforesaid dividend shall be at the rate of 6% of the Liquidation
Amount per annum, payable, at the Company's sole discretion, in cash or in
additional shares of Series A Preferred Stock (which shall be valued for such
purpose at the Liquidation Amount per share). The holders of the Series A
Preferred Stock shall also be entitled to participate on a pro rata basis in any
dividends paid on the Common Stock on an as-converted basis.
8. Voting Rights.
Each holder of outstanding shares of Series A Preferred Stock is entitled to the
number of votes equal to the number of whole shares of Common Stock into which
the shares of Series A Preferred Stock held of record by such holder are
convertible as of the applicable record date at each meeting of stockholders of
the Company (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Company for
their action or consideration. Except as provided by law and by the provisions
of Section 9 below, the holders of shares of Series A Preferred Stock shall vote
together with the holders of Common Stock as a single class.
Notwithstanding the above, the Company shall provide each holder of Series A
Preferred Stock with prior written notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any undertaking by the Company of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, the Company shall mail a
notice to each holder, at least ten (10) days prior to the record date specified
therein (or twenty (20) days prior to the consummation of any transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Nevada Revised Statutes ("NRS") the vote of the
holders of the Series A Preferred Stock, voting separately as a class or series
as applicable, is required to authorize a given action of the Company, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock, voting together in the aggregate and not in
separate series unless required under the NRS, represented at a duly held
meeting at which a quorum is present or by written consent of a majority of the
shares of Series A Preferred Stock (except as otherwise may be required under
the NRS), voting together in the aggregate and not in separate series unless
required under the NRS, shall constitute the approval of such action by the
class or by both series, as applicable. To the extent that under the NRS holders
of the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall entitle the holder thereof to cast that a number of votes per share
as is equal to the number of shares of Common Stock into which it is then
convertible using the record date for determining the stockholders of the
Company eligible to vote on such matters as the date as of which the Conversion
Price is calculated. Holders of the Series A Preferred Stock shall be entitled
to written notice of all stockholder meetings or written consents (and copies of
proxy materials and other information sent to stockholders) with respect to
which they would be entitled by vote, which notice would be provided pursuant to
the Company's bylaws and the NRS).
9. Protective Provisions. So long as the shares of Series A Preferred Stock are
outstanding, the Company shall not, take, approve or otherwise ratify any of the
following actions without the consent of at least a majority of the aggregate of
the then outstanding shares of Series A Preferred Stock, voting as a separate
series:
(a) authorize, issue or agree to authorize or issue any new class or series of
Senior Securities or Parity Securities or securities or rights of any kind
convertible into or exercisable or exchangeable for any such Senior Securities
or Parity Securities, or offer, sell or issue any Senior Securities or Parity
Securities or securities or rights of any kind convertible into or exercisable
or exchangeable for any such Senior Securities or Parity Securities;
(b) purchase, repurchase or redeem shares of (i) Common Stock, (ii) securities
or rights of any kind convertible into or exercisable or exchangeable for Common
Stock or (iii) other securities of the Company, (except in the case of a
termination of an employee, at which the Company may repurchase or redeem such
shares of Common Stock at cost and pursuant to any agreement under which such
shares of Common Stock were issued);
(c) increase the authorized number of shares of Series A Preferred Stock (other
than for the payment of dividends on the Series A Preferred Stock); or
(d) amend (by merger, consolidation or otherwise) the Articles of Incorporation
or Bylaws of the Company or alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any Parity Securities or Senior
Securities in each case so as to affect adversely the rights, preferences or
privileges of the Series A Preferred Stock.
10. No Reissuance of Series A Preferred Stock.
No outstanding share or shares of Series A Preferred Stock acquired by the
Company by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares of Series A Preferred Stock shall be cancelled,
retired and eliminated from the shares of Series A Preferred Stock which the
Company shall be authorized to issue. Any such shares of Series A Preferred
Stock acquired by the Company shall have the status of authorized and unissued
shares of Preferred Stock issuable in undesignated Series and may be
redesignated and reissued in any series other than as Series A Preferred Stock
provided that no such redesignated or reissued shares can be Senior Preferred
unless authorized pursuant to Section 9 hereof.
11. Registered Holders.
A holder of Series A Preferred Stock registered on the Company's stock transfer
books as the owner of shares of Series A Preferred Stock shall be treated as the
owner of such shares for all purposes. All notices and all payments required to
be mailed to a holder of shares of Series A Preferred Stock shall be mailed to
such holder's registered address on the Company's stock transfer books, and all
dividends and redemption payments to a holder of Series A Preferred Stock made
hereunder shall be deemed to be paid in compliance hereof on the date such
payments are deposited into the mail addressed to such holder at such holder's
registered address on the Company's stock transfer books.
12. Certain Remedies.
Any registered holder of shares of Series A Preferred Stock shall be entitled to
an injunction or injunctions to prevent breaches of the provisions of this
Certificate of Designations and to enforce specifically the terms and provisions
of this Certificate of Designations in any court of the United States or any
state thereof having jurisdiction, this being in addition to any other remedy to
which such holder may be entitled at law or in equity.
13. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of reference
only and shall not affect the interpretation of any of the provisions hereof.
14. Severability of Provisions.
If any right, preference or limitation of the Series A Preferred Stock set forth
herein (as may be amended) from time to time is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, such right,
preference or limitation (including, without limitation, the dividend rate)
shall be enforced to the maximum extent permitted by law and all other rights,
preferences and limitations set forth herein (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation herein set forth shall be deemed dependent upon any other such right,
preference or limitation unless so expressed herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer of the
Company, has executed this Certificate of Designations this ___ day of
October, 2005.
ELECTRONIC GAME CARD, INC.
By: /s/ John Bentley
--------------------
Name: John Bentley
Title: Chief Executive Officer
ANNEX B
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
ELECTRONIC GAME CARD, INC.
ELECTRONIC GAME CARD, INC. a corporation organized and existing under and by
virtue of the Nevada General Corporation Law, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written consent,
adopted the following resolution:
RESOLVED, that the Articles of Incorporation be amended by changing the first
sentence of the first paragraph of ARTICLE IV so that, as amended, said sentence
shall be and read as follows:
"The Corporation shall have authority to issue an aggregate of 110,000,000
shares of capital stock, of which 10,000,000 shares shall be Series A
convertible preferred stock, par value $0.001 (the "Series A Preferred Stock"),
and 100,000,000 shares shall be common stock, par value $0.001 (the "Common
Stock").
SECOND: That said amendment has been consented to and authorized by the holders
of a majority of the issued and outstanding stock entitled to vote by written
consents dated as of March 15, 2005 given in accordance with the provisions of
the Nevada General Corporation Law.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of the Nevada General Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to
Articles of Incorporation to be signed by its Chief Executive Officer this ___
day of Ocober, 2005.
John Bentley
Chief Executive Officer